Thursday, September 23, 2010

Wasted Ethics Policies

Since SOX (Sarbanes-Oxley), companies have scrambled to develop policies and training to keep them from becoming the next Enron. Some companies have even created a "Chief Ethics Officer" position. These efforts are welcomed although largely fruitless if not supported by actual leadership action.

Let's be honest. How likely is it that an unethical employee will suddenly become ethical after reading a new ethics policy or sitting through an ethics training? Not likely. After all, having an ethics policy in your company is like having a Bible in a hotel room. Just because it is there doesn't mean that everything that goes on is ethical. The best we can hope for is that the ethical employees will now be more aware of certain behaviors to look for and hopefully will be more willing to report unethical, or at least questionable acts. The worst that can happen is that we provide the unethical employee with the intelligence to know what we are looking for so that they can either avoid that altogether or become more clever in concealing that activity.

After all, having an ethics policy in your company is like having a Bible in a hotel room. Just because it is there doesn't mean that everything that goes on is ethical.

This is not to say that we should avoid writing strong ethics policies or provide training to our employees. Rather, it is to put those efforts into the proper perspective. Neither a written policy or any training will have the desired impact if it isn't supported by leaders willing to "walk the talk." Any indiscretion by leadership--no matter how minute it may be--can lead to the development of a "culture of corruption." It can actually happen very quickly. A sales manager fudging an expense report gives tacit approval to the sales force to do the same. A CEO using a company vehicle for personal reasons--against company policy--loses credibility and the ability to discipline a subordinate who does the same thing. As an old Russian saying goes, "A fish rots from the head down." So, any ethics problem in a company is actually a leadership problem.

What can leaders do? Besides the aforementioned training and policy efforts, leaders need to be willing to act quickly and decisively against ethics violations. Discipline must be fair, consistent, and quick. The moment an employee at one level is treated differently than an employee from a different level, for similar violations, the leadership has been neutered. Even if the employee in question is a "star," leadership must be willing to support the principles of the ethics policy lest they become worthless.

Leaders must lead with integrity.

More suggestions on actions leaders can take to impact the ethics of their organization will be upcoming.

Monday, September 13, 2010

The "Extreme Makeover" Fallacy: "Fixing" Leadership with Organizational Design

Business organizations love buzz words and acronyms. Drive through any industrial center and you are likely to see a large banner proclaiming “ISO 9001 Certified” hanging proudly from the side of a manufacturing facility. Walk inside that facility, and you are equally likely to find memos referencing the latest efforts to implement “Lean manufacturing,” “JIT,” “5s,” an “ERP” system, or some level of Six Sigma training. Businesses spend countless amounts of resources—both financial and human capital—on these kinds of implementations to squeeze the most productivity possible out of their organizations. Why shouldn’t they? After all, organizations are being asked to do more, better, faster, with less.
This same mentality has crept into the world of organizational development (OD). There is a growing notion that organizational ailments are the fault of improper design or structure of the organization itself. In other words, the wrong lines are connecting the wrong boxes on the organizational chart. Changing the organizational design with a tweak here or there may be the recipe. On the other hand, perhaps the symptoms are serious enough to warrant a complete overhaul of the design. The underlying premise and (I contend) flaw to organizational design theory is that the shape, structure, or design of the organization is a dominant factor in the behavior of the people in that organization. I call this the “Extreme Makeover Fallacy.”
The premise of ABC’s hit reality series “Extreme Makeover: Home Edition” is that a new home will give a deserving family a new start. “The renovated home always belongs to a deserving family” and “the lucky homeowners always have a heartening back story: Heroes, community leaders, and a plethora of inspirational families are truly the heart and soul of the show” (ABC: Shows). However, changing the structure that these “lucky homeowners” live in does not necessarily change their behavior or ensure success. A family from West Chester, Ohio with 3 children—2 with special needs that made life difficult in their original home—were recipients of a new home from the show in 2008 (WLWT Homepage: Family, 2008). Two years later, the parents filed for divorce. In 2009, a Penn Hills, Pennsylvania family was given a new home based on the community work done by the corrections officer father (WTAE Homepage: Entertainment, 2009). Within that same year, the couple ended up in divorce court with a protection order taken out against that father (WTAE Homepage: News, 2009). A Lake City, Georgia family, after getting their home from the show in 2005, used it as collateral for a $450,000 loan to start a construction business. Three years later, after the failure of that business venture, the home was in foreclosure (Associated Press, 2008). In these cases and more, the newly renovated home did not stave off failure. In some circumstances, the new home exacerbated the underlying—yet ignored—problems of the family. Applying the premise of Extreme Makeover: Home Edition to an organization, can lead to the same disappointing results.
Organizational design is often written about as if the results are completely independent from the contributions of the members of the organization. “Organizational designs that facilitate variety, change, speed, and integration are sources of competitive advantage” (Galbraith, 2002, p. 6). Does this mean that such designs can overcome members of the organization that do not “facilitate variety, change, speed, and integration?” According to some, organizational architecture can ensure that employee’s choices (which are typically based on self-interest) are more aligned with the corporate vision (Brickley, Smith, Zimmerman, & Willet, 2009). Again, the implication is that the structure can produce this result regardless of the involvement of leadership. Essentially, if organizations can renovate or build a better “home,” the “family” (employees) will be more successful. This is the fallacy.
This is not to say that organizational design is not worthy of consideration within an organization. Design issues should be considered—but as a way to support and to enhance already effective leaders. Shifting design while maintaining poor managers, only shifts the burden and poor performance to another area of the organization. If an organization, following a typical growth pattern, moves from a functional organizational design to a product design (Galbraith, 2002), and has had effective managers from the start, that design change will likely improve the overall performance of the company. But, if there were ineffective managers in the beginning producing mediocre performance, and those same managers continued with the organization into the product organization stage, the performance of the company would likely continue to be mediocre.
So why all the talk about design? Brickley et al hinted at this answer when they wrote that “Some argue that leaders motivate people through personal charisma, style, and inspiration. But while business managers can learn a lot from studying the styles of inspirational leaders, charisma is a quality that for most people is difficult to acquire” (2009). In other words, leadership is tough. General Omar Bradley is quoted as saying that “leadership is intangible.” Businesses prefer tangibles. Programs such as lean manufacturing and others mentioned at the beginning of this article offer businesses a tangible way to attack a problem. Similarly, organizational design theory gives businesses a tangible way to address leadership…all the while avoiding the real issue: leadership skills.
The entire quote from Bradley actually is “leadership is intangible, and therefore, no weapon ever designed can replace it.” In the context of this discussion, this quote could be re-phrased to read “leadership is intangible, and therefore, no organization ever designed can replace it”—no matter how “extreme” it is.

ABC: Shows. (n.d.). Retrieved September 09, 2010, from ABC.Go.com: http://abc.go.com/shows/extreme-makeover-home-edition/about-the-show

Associated Press. (2008, November 20). News: KOMO. Retrieved September 9, 2010, from KOMONews.com: http://www.komonews.com/news/entertainment/25999079.html

Brickley, J., Smith, C., Zimmerman, J., & Willet, J. (2009). Using Organizational Architecture to Lead Change. Journal of Applied Corporate Finance , 58-66.

Galbraith, J. R. (2002). Designing Organizations: An executive guide to strategy, stucture, and process. San Francisco: Jossey-Bass.